This is the second of two columns on business performance management tools. The first article, The ABCs of CPM Software, was published on November 10.
Myths and misinformation about business performance management systems and their use in financial services abound. Many revolve around the complexity of these tools, making it difficult for a CFO to see their value at the end of the implementation road. The myths, however, are easily debunked. We discuss five of them below.
Myth 1: Implementing CPM will take too long to generate value
To accelerate a CPM project (faster, less effort, minimal cost), CFOs should:
- Employ a solution design approach based on “configuration” rather than “customization”.
- Delimit the project from a minimal viable product (MVP) so that the organization can start realizing the value of the solution faster.
- After deploying MVP, approach the project from a phased implementation perspective, adding additional functionality.
- Design for financial consolidation and planning / forecasting in an upstream “common design phase”, but deploy each in a hierarchical fashion.
- Complete the source-to-target mappings before seeking professional services. (Likewise with other required mappings: organization / entity, product, channel, etc.)
- Remember, CPM is a platform specifically designed to support the financial consolidation, budgeting / forecasting, and reporting required to support these processes. So resist the temptation to turn the CPM system into a comprehensive platform for all reporting needs.
Myth 2: CPM focuses on financial data, not operational data
There is a grain of truth in this statement; however, it significantly underestimates the importance of operational data.
- There will be data / reporting needs that will be better supported by alternative platforms to CPM. That said, additional operational data that supports financial data and is leveraged as part of an engine-based planning / forecasting approach must be incorporated into the CPM solution.
- Even more than the CFOs of large multi-billion dollar organizations, CFOs of mid-sized and privately funded companies need to master both operational and financial measures.
- The capacity required to model multiple financial scenarios (best, worst, expected cases) can only occur when operational measures are introduced and correlated with the financial lines they drive.
- By overlaying side-by-side operational metrics with financial data, finance is informed and empowered to engage in constructive dialogue with various functional departments.
Myth 3: “We don’t need a CPM system since we are migrating to a single ERP”
- Consolidating multiple ledgers into a single enterprise resource planning system is time consuming, expensive, disrupts operations, and creates many change management challenges and risks.
- CFOs financed by private equity, in particular, often inherit a complex architecture of financial systems. Untangling these systems and the processes they support to migrate to a single ERP can be impractical at best, and at worst contrary to value creation.
- CPM solutions enable business unit autonomy (multiple G / L environments) while simultaneously giving finance the necessary controls to standardize the close / consolidation process, planning / forecasting and financial reporting.
Myth 4: Integrating acquisitions will be a challenge
While they can support some rudimentary functions, G / Ls often do not support the following:
- The financial closing / consolidation process (inter-company transfers, reconciliation of accounts, reconciliation of transactions, management of tasks).
- The planning / forecasting process (engine-based planning, scenario modeling, rolling forecasting).
- Reporting needs (dashboard, ad-hoc, drill-down and drill-through, analysis)
- Additionally, although spreadsheets provide more flexibility than a G / L to support the functions listed above, they inherently cannot enforce standards and controls. Additionally, the logic of the multi-worksheet workbook can be difficult to build, deconstruct, and add / modify when a business need, like an acquisition, requires it.
- Acquiring companies that aggressively develop and integrate new add-ons as part of their value creation strategy benefit significantly from the deployment of CPM solutions.
Myth 5: CPM solutions require significant technical support
Modern CPMs are cloud-based solutions and therefore less burdensome than those of previous generations.
- Their technical infrastructure is maintained by the software vendor as part of the software as a service model.
- The administration of the CPM solution is therefore best supported by finance and accounting resources who have good business knowledge and light technology skills.
- Steady-state support usually involves a part-time role. However, he can move full time during closing cycles and budgeting and forecasting processes.
- IT needs to step in when new data sources need to be integrated (for example, when trial balance data needs to come from a new G / L as part of an acquisition).
- There are outsourcing options whereby third party companies will administer the CPM solution as managed services.
The KING of CPM
There are costs associated with deploying CPM solutions. First, there is the software subscription. However, given the cloud-based nature of the modern CPM system, the SaaS model has significantly reduced the costs (and burdens) of implementation. Second, there is the software configuration. Companies can configure in-house or take advantage of external expertise. There will be support setup and labor costs (although less with an experienced partner). Then, of course, there are the costs of supporting the system (the administrative resources to maintain the system).
CFOs need to understand that the benefits of CPM can quickly payback the investment and create value in both hard and soft money. Among the former, technology cuts costs by enabling comparisons of business units to identify and exploit best practices. But there’s a soft dollar comeback that CFOs shouldn’t overlook. CPM technologies allow CFOs to realign the work of their finance department with higher added value functions (decrease in data collection, reconciliation and consolidation; increase in business analysis and support). Additionally, the insight gained from an investment in the CPM system helps CFOs make more informed business decisions and more easily correct the course when circumstances change.
Mike Cochran, Managing Director, CFO Technical Services Manager, at Accordion, the private equity-focused financial and technology consultancy firm.